Posen: Why has the US recovery been better than the UK’s?

Corporate investment has rebounded better in the US than in the UK thanks to the availability of non-bank options for financing, says external Monetary Policy Committee member Adam Posen.

In a speech delivered to the National Institute of Economic and Social Research, Posen questioned why the US has undergone a better recovery than the UK, despite experiencing similar shocks and monetary policies.

He said: “Our economies suffered largely the same type and size of shock at roughly the same time, and our respective central banks have pursued roughly the same type and size of counter-cyclical policy response – thankfully, in my view.

“Yet, the US has had significantly more GDP growth with somewhat lower inflation over the last thirty-two months than in the UK.”

A better rebound in corporate investment in the US, rather than the reduced threat of contagion from the debt crisis, is the better means of sourcing capital, argued Posen

“I believe that there is greater misallocation of credit going on in the UK economy at present than in the US, even if aggregate lending quantities are comparable.

“This is due to the lack of competition in the UK banking system compared to the US, and the smaller proportion of non-financial businesses which have access to loans, bonds, and/or securitisation thereof in the UK than in the US,” said Posen.

Outside of corporate investment, a UK recovery has been comparatively hampered by a greater rise in energy costs, less net withdrawal of fiscal stimulus and the VAT increase, said Posen.